I have been in practice for 24 years and there was a time that I thought that I had to be cheaper than the guy down the road or I wouldn’t eat. I now know that’s not the case.
The National Society of Accountants (NSA), releases a list of the average cost of tax returns each year. They poll their members and come up with an average of the going rate of the preparation of a tax return.
The national average is far below what I charge. My colleagues seem to fall in line with these amounts reported by the NSA.
I see a lot of prior years’ tax returns and one day, I got a return from a National Chain. The blatantly obvious mistakes on the return and the consecutive returns I examined were obvious to anyone that was a tax professional. Then saw the bill for the preparation and it was triple what I was charging.
Most national chains will offer a six-week tax preparation course, during the offseason. When the course is completed, they will offer the people, whom again have had six weeks of training, a job during tax season.
I thought long and hard about this and came to a conclusion. First of all, I don’t know the entire Internal Revenue Code, no one does. If confronted with something I don’t know, I do know where to research it however, in the time that I have been in practice, I have been exposed to a very diverse client base. Even then, when it comes to compliance work, like filling out a tax return, there is nothing simple about it.
A tax return is nothing more than a culmination of what my clients and I have been planning all year. For my core client base, I typically know what the outcome of the return will be before I do it. This is a direct result of precise tax planning.
However, a lot of times, a client will throw a curveball at me. For example, I have a client that is a physician. In 2017, I did precise planning where I thought the amount of tax that he was going to owe would be around $3,000.
Four days before March 15th, the physician client lets me know that he started two different LLCs that produced $1 Million in additional income that I was not expecting. After speaking with the person that set these LLCs up, which was a very bad attempt to hide my client’s identity through a series of shell companies, I was told these companies were partnerships.
Two days later, I receive the EIN Letters stating that each LLC was actually treated as a disregarded entity, with my client being the only member. I had to carefully think through what the next move would be.
Secondly, it seemed that with every tax return I touched in 2017 there was an exception attached to it. It was more than filling out a form, it required clarification from the client. Those clarifications led to more and more questions.
For example, I have another client, whom is also a physician and part of an LLC. There are many partners, as the point of this LLC is to negotiate better prices with insurance companies and apparently, there is strength in numbers. However, my client has his own LLC and makes over $350,000 on W-2 forms working as an on call doctor.
The K-1 that was issued stated that he was a limited partner. However, the income in Box 1 of the K-1 was also listed as self-employment income. On top of that, the client’s LLC was given a 1099 and he was personally given a 1099 as well as a W-2 all from the same company.
Aside from the fact that a limited partner has passive income, why would the same company state that the income was from self-employment? Given my client’s status as a limited partner, why would a 1099 be issued to both him personally and his LLC, not to mention this W-2 form.
I explained to the client what was going on and this began a string of emails and phone calls to the accounting firm of the main LLC. I quickly realized that either they did this only to my client or the other partner’s accountants just filled out the forms and didn’t care.
After about a week of exchanging phone calls and emails, my client stated to me that the tax implications were okay because the health reimbursements this company received offset them. I carried on and just filled out the form.
This has been a theme I have seen lately, especially when examining returns for potential clients. On every return I examine, there is a tax situation and instead of the tax professional devising a strategy to fix it they simply give out estimated tax forms. This is probably the reason they are talking to me in the first place.
The return that these other professionals prepared are far less than my fee. However, they simply filled out a form.
I understand that you can’t give 100 percent of your attention to one client however, when something is obvious I state to the client in writing what needs to be done to mitigate their tax liability in the future. I am 85 percent caught up on my returns and filed more extensions this year than I have ever filed in my life.
I am licensed, I have a Certificate in Taxation from UCLA, been in practice for 24 years and I will not be – nor do I want to be -- the cheapest option in town. Have I been cost prohibitive to some clients? Yes, however, you get what you pay for in this business.
I am not charging $550 for a corporate return, $200 for accounting services and $300 for an individual tax return. I am charging for my knowledge and experience.
That being said, I have turned down several engagements that would have paid me a lot of money, because my fee was more than what the client would have saved in taxes. I have told clients to do certain things because doing them would lower their fees, because I was charging more for something that they didn’t need.
For example, I had at least 10 clients that were S-Corporations that didn’t make any money for several years. When I spoke with them, I asked if they planned on making money in the next five years. Most didn’t expect to make money, so I nullified the S-Election because charging them for a corporate return cost more money to them than what they were actually saving in taxes.
If in the next five years they make money, we will just form another entity. The point is, stop the insanity. Charge what you are worth!
About Craig W. Smalley, EA
Craig W. Smalley, MST, EA, has been in practice since 1994. He has been admitted to practice before the IRS as an enrolled agent and has a master's in taxation. He is well-versed in US tax law and US Tax Court cases. He specializes in taxation, entity structuring and restructuring, corporations, partnerships, and individual taxation, as well as representation before the IRS regarding negotiations, audits, and appeals. In his many years of practice, he has been exposed to a variety of businesses and has an excellent knowledge of most industries. He is the CEO and co-founder of CWSEAPA PLLC and Tax Crisis Center LLC; both business have locations in Florida, Delaware, and Nevada. Craig is the current Google small business accounting advisor for the Google Small Business Community. He is a contributor to AccountingWEB and Accounting Today, and has had 12 books published on various topics in taxation. His articles have also been featured in the Chicago Tribune, New York Times, Yahoo Finance, Nasdaq, and several other newspapers, periodicals, and magazines. He has been interviewed and been a featured guest on many radio shows and podcasts. Finally, he is the co-host of Tax Avoidance is Legal, which is a nationally broadcast weekly Internet radio show.